The Truth About the Unemployment Rate in 2 Graphs

See also: Un-Spinning Jobs NumbersOn the first Friday of every month, the Bureau of Labor Statistics (BLS) releases their important "Jobs Report" that details the previous month's employment statistics. Among the menagerie of data points, the most important figure to the average American is the un-employment rate, and according to Friday's report of the August numbers, that rate fell from 8.3 to 8.1%.

Unfortunately, the 8.1% jobless rate is misleading and is a significant tail wind for the Obama campaign. When clarified, however, the un-employment rate is actually closer to 11.6%!

To the un-assuming observer, the month over month decline in the un-employment rate may seem to indicate that the economy is improving and even that the President's economic policy might be the proximate cause. To the more astute observer, the report showed the slowing of job creation to less than 100K; less than needed to compensate for population growth and less than the 2011 average of 153K jobs.

This distinction in the un-employment rate might be the most important figure in determining the winner of the 2012 Presidential race. Despite the political noise that enshrouds a presidential election, this election - like others - will come down to one important matter: the economy.

James Carville, President Clinton's campaign advisor famously said "the economy, stupid" and set it as the primary campaign point of Clinton's 1994 Presidential race. Clinton deftly pivoted, targeted the faltering economy, and defeated the sitting president. Romney should take note.

"The economy," in turn, can be discussed with one statistic; the unemployment rate. Harry Truman famously said "It's a recession when your neighbor loses his job; it's a depression when you lose your own." The 1952 race was about the economy, the 1994 race was about the economy, it's still about the economy and it will always be about the economy.

For at least the last 70 years, no president has been re-elected when the unemployment rate was over 7.2%.

With the entire election -- perhaps -- contingent upon on this one, important data point, it is important to investigate the figure further. From 2002, the un-employment rate fell steadily to a cyclical low of 4.4% but -- as a result of the 2008 Financial/Housing Crisis -- rose to 10% by the end of President Obama's first year in office; second only to the 1983, post war high of 10.8%.

The President and his campaign have identified the threat to their re-election hopes posed by the high un-employment figure and are quick to point out that despite the current rate of 8.1%, the un-employment rate has steadily fallen.

Here's what they're not telling you: since the start of the financial crisis, the labor participation rate -- defined by the BLS as the percentage of the workforce (anyone 16 and older who was working or looking for work) that is employed (full-time or part-time) -- has fallen precipitously. In other words, many workers have simply stopped looking for work.

According to the St. Louis Federal Reserve office, there are about 240 million Americans of working age. When the President took office in 2009, the Labor Participation rate was 65.8% but has fallen to 63.5% --the lowest in 30 years -- as of Friday's BLS report. This means that since the President has taken office, 5.5 million Americans have stopped looking for work and are not included in the un-employment rate!

According BLS's August data, of the approximate 240 million Americans of Working Age, 155 Million are participating in the work force and 12.5 Million are un-employed. This produces a un-employment rate of 8.1% (12.5M un-employed / 155 employed). But, when we add back the 5.5 million Americans who have given up looking for work during the Obama Presidency, we can calculate a more accurate un-employment figure of 11.6% (17M/155M). When the 8M "involuntary part-time employees" - those who want to work full time but can't find full-time jobs -- are added to those un-employed and to those who have stopped looking for work we come up with the "under-employed rate;" currently 16.8%!

Friday's BLS report may seem to suggest that the un-employment rate is falling at an acceptable pace and the President and his campaign will likely point out that 8.1% is a lot better than 10.0%. We political observers should recognize this tactic as putting lipstick on a pig.

How can the ranks of the un-employed continue to rise while the un-employment rate drops? Political fixing may be at work. After all, it was reported this week that the President's former senior advisor and current re-election senior strategist, David Axelrod, threatened the Gallop organization earlier this year for an unfavorable poll that showed Mitt Romney with a 48-43 lead over President Obama for the 2012 presidential election. If the White House will lean on private organizations for their data, we can assume they also lean on inter-governmental agencies such as the BLS.

If the President can convince the country that the un-employment rate is improving at an acceptable pace he will win the election. If R2 are able to convince voters that the un-employment situation is much worse than 8.1%, than they will win because, after all, it's the economy stupid.

On the first Friday of every month, the Bureau of Labor Statistics (BLS) releases their important "Jobs Report" that details the previous month's employment statistics. Among the menagerie of data points, the most important figure to the average American is the un-employment rate, and according to Friday's report of the August numbers, that rate fell from 8.3 to 8.1%.

Unfortunately, the 8.1% jobless rate is misleading and is a significant tail wind for the Obama campaign. When clarified, however, the un-employment rate is actually closer to 11.6%!

To the un-assuming observer, the month over month decline in the un-employment rate may seem to indicate that the economy is improving and even that the President's economic policy might be the proximate cause. To the more astute observer, the report showed the slowing of job creation to less than 100K; less than needed to compensate for population growth and less than the 2011 average of 153K jobs.

This distinction in the un-employment rate might be the most important figure in determining the winner of the 2012 Presidential race. Despite the political noise that enshrouds a presidential election, this election - like others - will come down to one important matter: the economy.

James Carville, President Clinton's campaign advisor famously said "the economy, stupid" and set it as the primary campaign point of Clinton's 1994 Presidential race. Clinton deftly pivoted, targeted the faltering economy, and defeated the sitting president. Romney should take note.

"The economy," in turn, can be discussed with one statistic; the unemployment rate. Harry Truman famously said "It's a recession when your neighbor loses his job; it's a depression when you lose your own." The 1952 race was about the economy, the 1994 race was about the economy, it's still about the economy and it will always be about the economy.

For at least the last 70 years, no president has been re-elected when the unemployment rate was over 7.2%.

With the entire election -- perhaps -- contingent upon on this one, important data point, it is important to investigate the figure further. From 2002, the un-employment rate fell steadily to a cyclical low of 4.4% but -- as a result of the 2008 Financial/Housing Crisis -- rose to 10% by the end of President Obama's first year in office; second only to the 1983, post war high of 10.8%.

The President and his campaign have identified the threat to their re-election hopes posed by the high un-employment figure and are quick to point out that despite the current rate of 8.1%, the un-employment rate has steadily fallen.

Here's what they're not telling you: since the start of the financial crisis, the labor participation rate -- defined by the BLS as the percentage of the workforce (anyone 16 and older who was working or looking for work) that is employed (full-time or part-time) -- has fallen precipitously. In other words, many workers have simply stopped looking for work.

According to the St. Louis Federal Reserve office, there are about 240 million Americans of working age. When the President took office in 2009, the Labor Participation rate was 65.8% but has fallen to 63.5% --the lowest in 30 years -- as of Friday's BLS report. This means that since the President has taken office, 5.5 million Americans have stopped looking for work and are not included in the un-employment rate!

According BLS's August data, of the approximate 240 million Americans of Working Age, 155 Million are participating in the work force and 12.5 Million are un-employed. This produces a un-employment rate of 8.1% (12.5M un-employed / 155 employed). But, when we add back the 5.5 million Americans who have given up looking for work during the Obama Presidency, we can calculate a more accurate un-employment figure of 11.6% (17M/155M). When the 8M "involuntary part-time employees" - those who want to work full time but can't find full-time jobs -- are added to those un-employed and to those who have stopped looking for work we come up with the "under-employed rate;" currently 16.8%!

Friday's BLS report may seem to suggest that the un-employment rate is falling at an acceptable pace and the President and his campaign will likely point out that 8.1% is a lot better than 10.0%. We political observers should recognize this tactic as putting lipstick on a pig.

How can the ranks of the un-employed continue to rise while the un-employment rate drops? Political fixing may be at work. After all, it was reported this week that the President's former senior advisor and current re-election senior strategist, David Axelrod, threatened the Gallop organization earlier this year for an unfavorable poll that showed Mitt Romney with a 48-43 lead over President Obama for the 2012 presidential election. If the White House will lean on private organizations for their data, we can assume they also lean on inter-governmental agencies such as the BLS.

If the President can convince the country that the un-employment rate is improving at an acceptable pace he will win the election. If R2 are able to convince voters that the un-employment situation is much worse than 8.1%, than they will win because, after all, it's the economy stupid.